Papua New Guinea
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COUNTRY REPORT Papua New Guinea 2nd quarter 1997 The Economist Intelligence Unit 15 Regent Street, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The EIU delivers its information in four ways: through subscription products ranging from newsletters to annual reference works; through specific research reports, whether for general release or for particular clients; through electronic publishing; and by organising conferences and roundtables. The firm is a member of The Economist Group. 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ISSN 1366-4085 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Redhouse Press Ltd, Unit 151, Dartford Trade Park, Dartford, Kent DA1 1QB, UK Papau New Guinea 1 Contents 3 Summary 4 Political structure 5 Economic structure 6 Outlook for 1997-98 9 Review 9 The political scene 12 Economic policy and the economy 15 Agriculture and forestry 16 Energy and mining 17 Transport and communications 18 Foreign trade and payments 22 Quarterly indicators and trade data List of tables 8 Forecast summary 9 World commodity price forecasts 12 Central government budget 13 Consumer price index 14 Employment by industry 14 Money supply 15 Commercial banks’ liquid asset holdings 15 Commercial bank interest rates 16 Export prices of agricultural products 16 Volume and value of agricultural exports 17 Mineral exports 18 Main exports 19 Balance of payments 20 Exchange rate of the kina 20 External debt 21 Public debt outstanding 22 Quarterly indicators of economic activity 22 Direction of trade 23 Main commodities exported EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 2 Papau New Guinea List of figures 8 Gross domestic product 8 Kina real exchange rate 13 Consumer price inflation 18 Exports by commodity group 19 Trade and current-account balances EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Papau New Guinea 3 May 11, 1997 Summary 2nd quarter 1997 Outlook for 1997-98: After being rocked by the worst political crisis in its 22-year history, PNG is returning to relative, but still uneasy, calm. The interim prime minister is not expected to stay in his post beyond—or even until— the general election in mid-June, which will be dominated by the issues of corruption and accountability that recent events have brought to the fore. The next premier is likely to be one of a handful of experienced politicians with generally tainted reputations. Economic growth will pick up again, but only to a still-moderate 3-4%. The current account will continue in surplus, but well below the comfortable margin of the recent past. The political scene: Sir Julius Chan’s attempt to resolve the Bougainville conflict by hiring mercenaries through the UK-based company, Sandline International, backfired when the chief of the defence forces rebelled. General Singirok’s call for the prime minister to resign was backed by the bulk of the army and by widespread public protests, which finally forced Sir Julius, his deputy and the defence minister to stand down. The judicial inquiry into the whole affair has brought up embarrassing accusations against the government. Economic policy and the economy: GDP grew by 1.9% in 1996, not quite making up the ground lost in 1995. The budget registered an unexpected surplus last year, largely owing to the steep rise in corporate tax receipts from the mining sector. Inflation fell steadily throughout 1996, ending the year in single digits . Formal employment was rising. Money growth surged in 1996, boosted by the proceeds of the Orogen Minerals float. The sharp rise in com- mercial bank liquidity brought a fall of 5 percentage points in interest rates. Sectoral trends: The prices of most agricultural exports rose in 1996, contrib- uting to an increase in foreign earnings. Output of both copper and gold fell last year, but the decline in oil production was stemmed. Orogen’s first year profits were higher than expected because of strong oil prices. Work on the second phase of the airport development and on a freeway in the capital may be delayed. Foreign trade and payments: The fall in copper volume and prices was the main cause of a 3% decline in overall export earnings in 1996, bringing a reduction in the surpluses on merchandise trade and hence the current account. The capital account recorded its first surplus in seven years. The kina depreciated only marginally against the US dollar last year. External debt fell in 1995, for the third year in succession. Editor: Sophie Lewisohn All queries: Tel: (44.171) 308 1007 Fax: (44.171) 830 1023 EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 4 Papau New Guinea Political structure Official name Independent State of Papua New Guinea Form of state Constitutional monarchy Head of state Queen Elizabeth II, represented by the governor-general, who is nominated by the National Parliament The executive The National Executive Council, presided over by the prime minister, has executive powers; the prime minister is appointed by the head of state on the proposal of parliament National legislature Unicameral National Parliament; its 109 members are elected for a period of five years, 89 representing “open” constituencies and the rest representing 19 provincial constituencies and the capital district Provincial government Each of the 19 provinces has its own government which may levy taxes to supplement grants received from the national government Legal system Series of regional and magistrates’ courts leading to a Supreme Court at the apex National elections June 1992; next elections due by June 14, 1997 National government Sir Julius Chan, leader of the People’s Progress Party, headed a coalition government, since his defeat of Paias Wingti of the People’s Democratic Movement in a parliamentary ballot in August 1994. He stood down on March 26, 1997, under popular pressure and was replaced, as acting prime minister, by John Giheno, deputy leader of the Pangu Pati Main political organisations People’s Progress Party; Pangu Pati; People’s Democratic Movement; National Party; Melanesian Alliance; People’s Action Party; League for National Advancement, National Alliance Main members of the Acting prime minister, defence & petroleum minister John Giheno National Executive Council Deputy prime minister & forestry minister Andrew Baing Key ministers Agriculture & livestock David Mai Education John Waiko Environment Paul Mambei Finance (acting) Nakikus Konga Fisheries & marine resources Titus Philomen Foreign affairs Kilroy Genia Health Philemon Embel Home affairs David Unagi Housing Robert Nagle Industrial relations Samson Napo National planning Moi Avei Provincial & local governments Paul Barter Public services Joseph Onguglo Transport & works Peter Yama Central bank governor Koiara Tarata EIU Country Report 2nd quarter 1997 © The Economist Intelligence Unit Limited 1997 Papau New Guinea 5 Economic structure Latest available figures Economic indicators 1992 1993 1994 1995 1996 GDP at current prices Kina m 4,140 4,979 5,297 6,060a 6,939a Real GDP growth % 11.8 16.6 3.5 –2.9 1.9b Consumer price inflation % 4.3 4.9 2.9 17.3 11.6 Population m 3.85 3.92 4.00 4.07 4.10 Exports fob US$ m 1,948 2,604 2,651 2,670 2,514b Imports fob US$ m 1,323 1,135 1,325 1,262 1,505b Current account US$ m 95 646 569 674 271b Reserves excl gold US$ m 239 141 96 261 592 Total external debt US$ m 3,748 3,232 2,696 2,431 n/a Debt-service ratio % 28.2 28.7 30.4 20.8 n/a Exchange rate (av) Kina:US$ 0.965 0.978 1.005 1.276 1.318 May 9, 1997 Kina1.389:US$1 Origins of gross domestic